GAZA (CNN) -- Food and jobs are scarce, schools are floundering, hospitals are without electricity and sewage flows freely to the sea.

Palestinians form a line in January at a Gaza City bakery, one of few that hadn't closed for lack of fuel.

So said a Thursday report from eight human rights agencies, which say conditions in Gaza are worse today than at any point since the Israeli military began occupying the territory three decades ago.

"The current situation in Gaza is man-made, completely avoidable and, with the necessary political will, can be reversed," it said.

Israel denounced the 16-page report, saying it is merely defending itself and calling the notion of a humanitarian crisis "fabricated."

However, Geoffrey Dennis, chief executive of Care International UK, one of the groups behind the report, said the crisis exists. Innocent people are suffering and dying, he said. Read the full report

"It's unacceptable and that's why we're raising the issue," he said. "It can't get much worse."

The report blasts Israel's blockade of Gaza, saying that by slashing shipments of supplies and forbidding Palestinians to leave for work or healthcare, the Jewish state is imposing hardships on the 1.5 million Palestinians residing in the ravaged territory.

"Gaza has suffered from a long-term pattern of economic stagnation and plummeting development indicators," according to the report. "The severity of the situation has increased exponentially since Israel imposed extreme restrictions on the movement of goods and people in response to the Hamas takeover of Gaza and to indiscriminate rocket attacks against Israel."

Gaza crisis

Among the conditions cited in the 16-page report:  Almost three-quarters of the population relies on food aid  3,500 of Gaza's 3,900 factories closed over six months last year Up to 40 million liters of sewage a day flow into sea because there is no fuel for pumps  Fuel and power shortages leave hospitals blacked out eight to 12 hours a day  Failure rate almost 80 percent among fourth- through ninth-graders

Israel, which stepped up its military operations in Gaza last week in response to Palestinian militants firing rockets into the Jewish state, quickly responded to the report, saying Hamas -- not Israel -- was to blame for the hardships in Gaza.

"As stated to these organizations time and time again by the Israeli government, they should point their criticism towards the Hamas terrorist organization that controls the Gaza Strip, and not against the state of Israel," a statement from Israel's Foreign Ministry said.

Hamas, the militant Palestinian organization that wrested control of Gaza from the rival Fatah movement last year, is considered a terrorist organization by many Western governments and refuses to recognize Israel's right to exist.

The Foreign Ministry statement said the aid groups authoring the report "fail to face the reality and sequence of events leading to the deteriorating situation in the southern regions of Israel, as well as in" Gaza.

The statement added that Israel often works with non-governmental organizations in Palestinian territories, and a Foreign Ministry official said Israel allows shipments of food, fuel and medicine into the region to stave off any potential humanitarian crisis.

"If only the Palestinians chose to cease their pointless and indiscriminate firing of rockets and missiles against hundreds of thousands of Israeli civilians, the entire region would return to a normal routine in which Palestinians and Israelis could once again enjoy their daily lives," the ministry said.

Israel has occupied Gaza since the Six Day War in 1967, but removed its settlers and forces in 2005. Critics of Israel's policy say the Jewish state has continually controlled access to Gaza since then -- a contention on which the Thursday report heavily relies. Watch why the report says the situation is worsening »

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"Movement in and out of Gaza is all but impossible and supplies of food and water, sewage treatment and basic health care can no longer be taken for granted," according to the report. "As a result of the blockade and collapse of the economy, there is little money to buy food and limited food to buy. Food prices are rising, and wheat flour, baby milk, and rice, among other essential goods, are increasingly scarce."

The report says Israel's policy in Gaza flouts international humanitarian law and amounts to "a collective punishment against ordinary men, women and children."

"Israel has the right and duty to defend itself against indiscriminate rocket attacks against its civilian population, but the current policy fails to provide Israel with increased security and has led to increasing polarization," the report said.

It also quotes a United Nations official, saying, "Hungry, unhealthy, angry communities do not make good partners for peace" and calls on Israel to embrace "dialogue and reconciliation" in its quest for peace. It also calls on the international community to support such efforts.

Peace talks between the two sides were briefly derailed this week when Palestinian President Mahmoud Abbas called off negotiations in response to Israel's offensive in Gaza.

U.S. Secretary of State Condoleezza Rice -- in the region to meet with Israeli, Palestinian and Egyptian leaders involved in the peace process -- urged Palestinians and Israel to return to the table. Abbas and Israel agreed Tuesday to do so, but gave no deadline for renewing talks.

Rice criticized both sides, saying Palestinians must put an end to the rocket fire into Israel and Israel must exercise its response more judiciously.

"The United States, of course, understands the right of Israel to defend itself," Rice said, but "Israel needs to be very cognizant of the effects of its operations on innocent people."

Israeli Foreign Ministry spokesman Aryeh Mekel said Thursday the notion of a humanitarian crisis in Gaza "fabricated," and he underscored the state's position that Hamas is responsible for problems there.

Israel provides food, medicine, electricity and fuel to Gaza because it doesn't want a humanitarian crisis, but there is "foolproof" evidence that Hamas diverts supplies for "terrorist use," he said.

"If they stopped the rockets today, everything would go back to normal," he added.

The Thursday report was issued by the Catholic Agency for Overseas Development, Amnesty International, CARE International UK, Christian Aid, Medecins du Monde UK, Oxfam, Save the Children UK and Trocaire.E-mail to a friend